Insta–DART (Daily Aptitude and Reasoning Test) 22 May 2021

The need for Competition Law becomes more evident when Foreign Direct Investment (FDI) is liberalised. The impact of FDI is not always pro- competitive. Very often FDI takes the form of a foreign corporation acquiring a domestic enterprise or establishing a joint venture with one. By making such an acquisition the foreign investor may substantially lessen competition and gain a dominant position in the relevant market, thus charging higher prices. Another scenario is where the affiliates of two separate Multinational Companies (MNCs) have been established in competition with one another in a particular developing economy, following the liberalisation of FDI. Subsequently, the parent companies overseas merge. With the affiliates no longer remaining independent, competition in the host country may be virtually eliminated and the prices of the products may be artificially inflated. Most of these adverse consequences of mergers and acquisitions by MNCs can be avoided if an effective competition law is in place. Also, an economy that has implemented an effective competition law is in a better position to attract FDI than one that has not. This is not just because most MNCs are expected to be accustomed to the operation of such a law in their home countries and known how to deal with such concerns but also that MNCs expect competition authorities to ensure a level playing field between domestic and foreign firms

With reference to the passage, consider the following statements.

1. It is desirable that the impact of Foreign Direct Investment should be pro-competitive.
2. The entry of foreign investors invariably leads to the inflated prices in domestic markets.

Which of the statement(s) given above is/are correct?

The need for Competition Law becomes more evident when Foreign Direct Investment (FDI) is liberalised. The impact of FDI is not always pro- competitive. Very often FDI takes the form of a foreign corporation acquiring a domestic enterprise or establishing a joint venture with one. By making such an acquisition the foreign investor may substantially lessen competition and gain a dominant position in the relevant market, thus charging higher prices. Another scenario is where the affiliates of two separate Multinational Companies (MNCs) have been established in competition with one another in a particular developing economy, following the liberalisation of FDI. Subsequently, the parent companies overseas merge. With the affiliates no longer remaining independent, competition in the host country may be virtually eliminated and the prices of the products may be artificially inflated. Most of these adverse consequences of mergers and acquisitions by MNCs can be avoided if an effective competition law is in place. Also, an economy that has implemented an effective competition law is in a better position to attract FDI than one that has not. This is not just because most MNCs are expected to be accustomed to the operation of such a law in their home countries and known how to deal with such concerns but also that MNCs expect competition authorities to ensure a level playing field between domestic and foreign firms

According to the passage, how does a foreign investor dominate the relevant domestic market?

1. Multinational companies get accustomed to domestic laws.
2. Foreign companies establish joint ventures with domestic companies.
3. Affiliates in a particular market/sector, lose their independence as their parent companies overseas merge.
4. Foreign companies lower the cost of their products as compared to that of products of domestic companies

Which of the statements given above are correct?

The need for Competition Law becomes more evident when Foreign Direct Investment (FDI) is liberalised. The impact of FDI is not always pro- competitive. Very often FDI takes the form of a foreign corporation acquiring a domestic enterprise or establishing a joint venture with one. By making such an acquisition the foreign investor may substantially lessen competition and gain a dominant position in the relevant market, thus charging higher prices. Another scenario is where the affiliates of two separate Multinational Companies (MNCs) have been established in competition with one another in a particular developing economy, following the liberalisation of FDI. Subsequently, the parent companies overseas merge. With the affiliates no longer remaining independent, competition in the host country may be virtually eliminated and the prices of the products may be artificially inflated. Most of these adverse consequences of mergers and acquisitions by MNCs can be avoided if an effective competition law is in place. Also, an economy that has implemented an effective competition law is in a better position to attract FDI than one that has not. This is not just because most MNCs are expected to be accustomed to the operation of such a law in their home countries and known how to deal with such concerns but also that MNCs expect competition authorities to ensure a level playing field between domestic and foreign firms

What is the inference from this passage?

In a typical Western liberal context, depending of democracy invariably leads to consolidation of “liberal values.’ In the Indian context, democratization is translated into greater involvement of people not as ‘individuals’ which is a staple to liberal discourse, but as communities or groups. Individuals are getting involved in the public sphere not as ‘atomized’ individuals but as members of primordial communities drawn on religious or caste identity. Community-identity seems to be the governing force.

It is not therefore surprising that the so-called peripheral groups continue to maintain their identities with reference to the social groups (caste, religion or sect) to which they belong while getting involved in the political processes despite the fact that their political goals remain more or less identical. By helping to articulate the political voice of the marginalised, democracy in India has led to ‘a loosening of social structures’ and empowered the peripherals to be confident of their ability to improve the socio-economic conditions in which they are placed. This is a significant political process that had led to a silent revolution through a meaningful transfer of power from the upper caste elites to various subaltern groups within the democratic framework of public governance.

According to the passage, what does ‘deepening of democracy’ mean in the Western context?

In a typical Western liberal context, depending of democracy invariably leads to consolidation of “liberal values.’ In the Indian context, democratization is translated into greater involvement of people not as ‘individuals’ which is a staple to liberal discourse, but as communities or groups. Individuals are getting involved in the public sphere not as ‘atomized’ individuals but as members of primordial communities drawn on religious or caste identity. Community-identity seems to be the governing force.

It is not therefore surprising that the so-called peripheral groups continue to maintain their identities with reference to the social groups (caste, religion or sect) to which they belong while getting involved in the political processes despite the fact that their political goals remain more or less identical. By helping to articulate the political voice of the marginalised, democracy in India has led to ‘a loosening of social structures’ and empowered the peripherals to be confident of their ability to improve the socio-economic conditions in which they are placed. This is a significant political process that had led to a silent revolution through a meaningful transfer of power from the upper caste elites to various subaltern groups within the democratic framework of public governance.

Greater democratisation in India has not necessarily led to